I will never work with you again

Phil SpencerWe are in a unique position. If we don't make a move, someone else will. Sony is already ahead. Google and Amazon are coming. We need content that can't be taken away. Activision's stock is down 30% and the board is under pressure. Bobby may be willing to sell.

Satya NadellaWhat's the price?

Phil SpencerAt the current market cap, around $50 billion. With a premium, probably $65-70 billion. It's a lot, but Call of Duty alone is worth $20 billion. Candy Crush is a cash machine. And World of Warcraft gives us a subscription business we don't have.

Satya NadellaLet's explore it. Quietly. We don't need the market speculating before we've even had a conversation.

Xbox strategy slideContent is the moat. Without exclusive content, Game Pass is a commodity. Sony has Spider-Man, God of War, The Last of Us. Nintendo has Mario, Zelda, Pokemon. We have Halo. Halo is not enough.

Xbox strategy slideMobile is the growth vector. We have zero mobile presence. King gives us 240 million monthly active users overnight. Call of Duty Mobile has 650 million downloads. This is not just about console. This is about the entire gaming ecosystem.

Xbox strategy slideCloud gaming is the next battleground. Sony has PlayStation Now. Amazon has Luna. Google tried and failed with Stadia, but they'll be back. Whoever owns the cloud gaming infrastructure owns the distribution channel. We have Azure. We need the content to feed it.

Microsoft deal team leadBobby is pushing for a significant premium. He's arguing that the stock is artificially depressed by the harassment news and that the intrinsic value is much higher. He wants $95 a share.

Phil SpencerThat's almost a 50% premium. What's his walk-away number?

Microsoft deal team leadWe think $90. But we can probably get him to $88. The board is more motivated than he is. They want this done. Several directors have told us privately that they would accept $85. The harassment litigation is getting worse. They need an exit.

Phil SpencerGet to $88 and close it. Don't let this drag out. Every day this leaks is a day Sony has to organize opposition.

Satya NadellaThis is a big bet, but gaming is the largest and fastest-growing form of entertainment. We cannot afford to be a bystander. The question is not whether we can afford to do this. It's whether we can afford not to. Gaming is a $200 billion market growing at 10% annually. Mobile gaming alone is $100 billion. We have essentially zero presence in mobile. Activision gives us King, the second-largest mobile game publisher in the world.

Satya NadellaThe regulatory risk is real. The FTC is going to challenge this. The CMA will be aggressive. The EU will take its time. We should expect 12-18 months of regulatory review. But the prize is worth the fight. We either own gaming or we watch someone else own it.

QDid you express concerns about Microsoft's ability to close the deal?

Bobby KotickI told them if they couldn't get regulatory approval, I would never work with them again. I was very direct about that. I said, "If you can't get this done, you're going to have a problem with me personally and with this company for the rest of your careers."

QWas this a threat?

Bobby KotickIt was a statement of fact. The deal was existential for Activision. If Microsoft walked away, we would have been in a very difficult position. The stock would have collapsed. The lawsuits would have multiplied. The employees would have revolted. I wasn't going to let that happen.

QDid you discuss the deal's failure with anyone at Microsoft?

Bobby KotickI discussed it with Phil Spencer. I told him the same thing. He understood. He said he would do everything in his power to get it done. He was as committed as I was. We both knew the stakes.

Brad SmithThe CMA's theory is more aggressive than we expected. They're not just worried about Call of Duty exclusivity. They're worried about cloud gaming. They think we're trying to dominate the next platform before it exists. We need to offer concessions. Real ones. Not cosmetic.

Satya NadellaWhat kind of concessions?

Brad SmithWe could offer to license Call of Duty to Sony and Nintendo for 10 years. We could divest the cloud gaming rights. The CMA needs to be able to claim they extracted something meaningful. If we don't give them something, they will block the deal. And unlike the FTC, the CMA can actually kill it. They have the authority and they're not afraid to use it.

Satya NadellaWhat's the minimum they'll accept?

Brad SmithI think the cloud gaming rights. That's their real concern. They don't want Microsoft owning the distribution channel for the next generation of gaming. If we divest the cloud streaming rights for Activision titles, that addresses their core concern.

Phil SpencerSony is saying we'll make Call of Duty exclusive. We've already offered them a 10-year deal. They're not negotiating in good faith. They just want to kill the deal. Jim Ryan is telling every regulator that we're going to pull Call of Duty from PlayStation the day the deal closes.

Brad SmithThat's their strategy. They don't want a license. They want the deal to fail. Every regulator we talk to, Sony has been there first. They're running a very effective campaign. Jim Ryan told the CMA that Call of Duty is "a category of gaming unto itself" and that Microsoft would have every incentive to make it exclusive.

Phil SpencerWe should go public with the 10-year offer. Force them to respond. If they reject it publicly, it undercuts their argument that we're going to make Call of Duty exclusive. Let the world see that we offered and they refused.

Brad SmithAgreed. We'll announce the Nintendo deal and say the Sony offer is on the table. Put the ball in their court. If they say no publicly, they lose their best argument.